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AI and other emerging technologies are expected to significantly reduce the time spent on service delivery, prompting firms to rethink pricing across all service lines.<\/span> We have long advocated pricing based on the difference-making value of the services delivered, the level of expertise required, the risk assumed by the firm, and the investments needed to deliver the work.<\/strong><\/span> Those investments extend beyond technology to include professional development, process and workflow improvements, and new roles and talent models. As firms revisit pricing and look for ways to address rising technology costs, some are considering adding a separate technology fee\u2014typically 5% of service fees\u2014to their client invoices.<\/span><\/p>\nA technology fee is not a new idea. Many firms implemented a technology fee several decades ago with the rise of microcomputers, accounting software, and practice management solutions. And applying a technology fee to client invoices is neither right nor wrong. However, we have identified some risks when implementing<\/span>\u00a0technology fees, so it\u2019s important to weigh<\/strong> <\/span>the pros and cons first<\/strong><\/span>, which include:<\/span><\/p>\nPros:<\/strong><\/span><\/p>\n\n- Recovering technology costs<\/span> \u2013 <\/span><\/strong>The fee helps recover technology-related expenses (AI, software licenses, hardware, cybersecurity, cloud services)<\/span><\/li>\n
- Funding technology investments<\/strong><\/span> \u2013 A technology fee can help you fund ongoing technology upgrades and investments<\/span><\/li>\n
- Transparency to clients<\/strong><\/span> \u2013 Clients understand that technology is a significant part of service delivery, which can help justify the fees and increase appreciation for the firm’s investment in robust technology tools<\/span><\/li>\n
- Scalability based on client billings<\/span> \u2013 <\/span><\/strong>Larger client billings incur a higher tech fee with the assumption they benefit more from the technology than smaller clients\/engagements<\/span><\/li>\n
- Simple calculation <\/span>\u2013 <\/span><\/strong>A percentage of billings is straightforward to calculate, administer, and communicate internally and with clients<\/span><\/li>\n<\/ol>\n
Cons:<\/strong><\/p>\n\n- Client Resistance<\/strong><\/span> \u2013 Some clients may view the fee as an unwelcome additional charge, especially if it is not clearly explained and justified<\/span><\/li>\n
- Potential Competitive Disadvantage<\/strong><\/span> \u2013 Competitors who don\u2019t charge technology fees might appear to have more favorable pricing models<\/span><\/li>\n
- Fairness Concerns<\/span> \u2013 <\/span><\/strong>Some clients might use less technology or require fewer tech resources but still pay the full percentage, which can feel unbalanced and impact client goodwill<\/span><\/li>\n
- Increasing Tech Fees<\/strong><\/span> \u2013 As tech fees continue to increase, the percentage increase for the tech fee may become too large compared to the service fees, especially if service fees shrink over time due to increased efficiency<\/span><\/li>\n
- Client Communication<\/span> \u2013 <\/strong>While calculating the fee may be straightforward, explaining the fee properly requires careful and consistent communication to avoid misunderstandings<\/span><\/li>\n<\/ol>\n
After weighing the pros and cons, if you decide to apply a separate technology fee, ensure all business development and client service professionals understand and can articulate your position consistently so it is successfully implemented. This requires a communications plan complete with a frequently asked questions (FAQ) document to help guide your people when they receive questions or objections. Your communications and implementation plan should include the following considerations:<\/span><\/p>\n\n- How the technology fee fits into your overall pricing philosophy<\/strong><\/span> \u2013 To start, be clear how it fits into your overall pricing strategy or philosophy. Be sure to address how your fees are based on value, risk, and expertise. Also identify what your annual increase plan is as well as planned annual fee increases and a separate technology fee.<\/span><\/li>\n<\/ul>\n
Also, determine if your tech fee is a<\/span> bridge strategy<\/strong><\/span>\u00a0while transitioning to value\u2011based subscription pricing and away from time-based pricing or if the tech fee is planned to be a<\/span>\u00a0separate line item<\/strong>\u00a0indefinitely.<\/strong> Your risk is that a tech fee becomes a crutch that delays broader pricing evolution. <\/strong><\/span>At a minimum, evaluate your tech fee annually as part of your overarching pricing and fee philosophy and approach. And be sure to research your state\u2019s laws to ensure the legality of extra or itemized charges on invoices and\/or obtain legal advice before rolling out a tech fee.<\/span><\/p>\n\n- What the technology fee covers<\/strong> <\/span>\u2013 Identify what your planned tech fee covers as many clients don\u2019t understand the vast use of technology in delivering accounting, assurance, tax, and consulting services. Clearly articulate that it supports secure portals, workflow automation, deliverable production, AI\u2011assisted review, cybersecurity, data protection and more.<\/span> Carefully craft how using these technologies adds value to the client and the additional risks you need to mitigate.<\/strong><\/span> For example, GenAI may compare documents faster, however, the manager has to review the output for accuracy as AI can hallucinate as it\u2019s still learning and this is a risk you have to manage. And as GenAI becomes more accurate and reliable, it has the potential to free you and your team up to provide more analysis and proactive advice specific to the client and their circumstances. The value then increases to the client and how they may use that deliverable and information.<\/span><\/li>\n<\/ul>\n
You may receive objections from clients, if you haven\u2019t already, that AI and other technologies should result in a fee reduction<\/em>. My partner Jen Wilson wrote a sample FAQ to help leaders anticipate and answer these objections in her blog<\/span> Confidently Addressing AI Fee Pressure: A Sample FAQ<\/strong><\/a><\/span>.<\/p>\n\n- How to communicate your tech fee to your clients<\/strong><\/span> – <\/strong>Be transparent\u00a0and communicate about the tech fee before <\/em>it appears on their invoice. Clients (like most of us) don\u2019t like surprises and don\u2019t react well when they discover new fees not previously disclosed. Transparency builds trust and it gives you the opportunity to articulate how you\u2019re using the technologies (and how they should be using them!).<\/span> Be sure to update engagement letters and proposals with your messaging about the technology fee, what it covers, and its increased value and risk. While you\u2019re updating your proposals and engagement letters, we strongly suggest that you remove any language that says you\u2019ll bill clients \u201cbased on time incurred,\u201d too, given that AI will reduce time, and this statement could limit your ability to fully capture value in future billings.<\/strong><\/span><\/li>\n<\/ul>\n
Be consistent in the ways you apply your tech fee across clients. People compare, and you want to avoid questions about why one client was charged the fee and another wasn\u2019t. And your team should be taught how to communicate and apply the fee consistently and not have to manage by exception based on partners\u2019 or managers\u2019 preferences or feelings about it.<\/span><\/p>\n\n- Create an FAQ – As mentioned, it is helpful to anticipate the commonly asked questions your team members and your clients may have, capturing them in a Tech Fee Frequently Asked Questions (FAQ) document. Having a single document with your answers helps ensure consistent positioning, too, from your leadership to the team and from your team to your clients.<\/strong> <\/span>Some questions you\u2019ll need to be able to answer include:<\/span>\n
\n- Why are you adding a technology fee and not including it in your fees as a cost of doing business?<\/span><\/li>\n
- What is included in the technology fee? What do we receive for it?<\/span><\/li>\n
- Why do you charge a technology fee when other CPA firms\/my past CPA firm does not?<\/span><\/li>\n
- Why is the tech fee a percentage instead of a flat amount?<\/span><\/li>\n<\/ul>\n<\/li>\n
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\n- Will the tech fee reduce the need for you to annually increase my fees?<\/span><\/li>\n
- How often will I see the tech fee? Will the charge be on my bill every year\/month\/invoice?<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n
A technology fee is less about math and more about alignment with your firm\u2019s overall pricing philosophy,\u00a0communication, and consistency.<\/span> Tech fees alone are unlikely to capture the full value, expertise, risk, or advisory judgment your firm applies. Reimagining and gaining agreement on an evolved pricing philosophy, which moves away from time-based pricing and considers how or if a tech fee fits, is critical for your leadership team to undertake this year.<\/span> <\/strong>If you\u2019re down this path, we\u2019d love your insights into your pricing philosophy and how a tech fee may or may not fit, as well as lessons learned as you\u2019ve implemented a tech fee. We\u2019re interested!<\/span><\/p>\nAnd if you\u2019d like to further discuss the steps to take as you approach this evolution, we\u2019d love to explore them with you.<\/span><\/p>\nGratefully,<\/span><\/p>\nTamera<\/span><\/p>\n<\/p><\/div>\n